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The Nature and Costs of Dis-Equilibrium Trade: The Case of Transatlantic Grain Exports in the 19th Century

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Author Info

  • Mette Ejrnæs

    (Institute of Economics, University of Copenhagen)

  • Karl Gunnar Persson

    (Institute of Economics, University of Copenhagen)

Abstract

The essential issue addressed in this paper is whether inefficient spatial arbitrage has significant welfare effects. The paper looks at the gains from improved market efficiency in transatlantic grain trade in the period 1855-1895. It shows that there is a law of one price equilibrium but that markets display spells of demand- or supply- constrained trade. Over time adjustments back to equilibrium as measured by the half-life of a shock become faster, and adjustment parameters are much larger than routinely reported in the PPP-literature. There are also significant gains from improved market efficiency but most of that improvement takes place in one step after the information ‘regime’ shifts from pre-telegraphic communication to a regime with swift transmission of information in an era with a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 05-02.

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Length: 22 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:kud:kuiedp:0502

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Related research

Keywords: market integration; error correction; law of one price;

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  1. Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592, December.
  2. Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 1995. "The Law of One Price Over 700 Years," NBER Working Papers 5132, National Bureau of Economic Research, Inc.
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